FAQ: Frequently Asked Questions
What is a QROPS?
A QROPS is a Qualifying Recognised Overseas Pension Scheme that has been approved by Her Majesty’s Revenue & Customs (HMRC) to receive transfer of UK Benefits without incurring charges. In New Zealand this is an HMRC approved Superannuation fund with strict rules around withdrawals that must comply with the UK rules.
This pension structure enables a member of a UK pension scheme to transfer into an overseas pension that is recognised by the HMRC.
What is a QROPS transfer?
If you decide to transfer your pension to New Zealand, after you have moved here, you can do so by transferring it into a QROPS. The New Zealand QROPS must adhere to the pension transfer rules set by the HMRC. The only way you can transfer your pension to New Zealand is through a QROPS.
You can cash your pension up in the UK before you come to New Zealand while you are still a British tax resident. In this case you will not be transferring a pension and will just be bringing money to New Zealand. However, 75% of your pension will be taxed by your UK pension provider before they release your funds. You can only cash up your pension after you have turned 55.
If you cash up your pension in the UK after you have moved to New Zealand and then become a New Zealand tax resident, your pension will be taxable in New Zealand based on the rules for the taxation of pensions. As well as this, your UK provider will have already deducted tax from 75% from it. You can claim back the tax paid by your UK pension provider because of the Double Taxation Agreement between New Zealand and the UK. This process, however, is time consuming and can be expensive if you use an accountant.
Can I transfer my QROPS back to the UK?
Once you have converted you pension into a QROPS, you have accepted a transfer value and moved to another scheme in another country. The deal has been done. If you decide to move back to the UK, your previous pension provider will regard you as a new client. You can set up a new scheme, but you cannot re-join the one you left.
If you leave New Zealand permanently, you can cash up your QROPS and take your funds with you.
Caution: If you move to live in another country within five years of transferring your pension to New Zealand, the NZ QROPS is obliged to notify the HMRC that you have emigrated. A charge of 25% of your transferred pension funds will be applied. This is called the Overseas Transfer Charge (OTC). The OTC will be applied even if you leave your funds in New Zealand. As soon as your QROPS provider learns that you have moved to live in another country, they must advise the HMRC and deduct the OTC from your funds.
Is QROPS a good idea?
It usually, but not always, makes sense to transfer your pension to New Zealand after you have moved here. Sometimes, a pension provider promises to pay an inflation-adjusted income for life that is far higher than the income you could get in New Zealand.
It would be foolish to cash a valuable scheme up just to access instant money (assuming you are over age 55 and can). Usually, the calculations show that transferring your pension to NZ is the better option.
Before you make a decision, Lyfords will look at your options provided by your UK pension provider and discuss them with you.
What is the best performing QROPS in NZ?
Nothing stays in number one position forever. A best performing fund will inevitably fall from the top position.
There are two ways to get better than typical returns.
Invest into funds that don’t have high management fees. Your investment returns will be eroded by high fees.
- Actively managed funds cannot consistently outperform the markets.
- Passively managed funds will slide downwards in a market downturn and rise in a market upturn – this is unsatisfactory.
The solution is to invest somewhere at the midpoint between active and passive funds management. You can choose to be invested in Smart Beta funds, which is a way of investing that sits between active and passive funds management. Most QROPS providers cannot provide this option. At Lyfords, we can explain which QROPS will be best for you.
The best performing funds would have most of your pension funds invested in equities (shares). Usually, share markets perform better than term deposits and fixed interest, but investment markets have regular ups and downs. In the long-term, you can expect to get the best returns if you are invested 98% in world share markets. Would the risk of losing 50% of your capital in less than a month, or a week, be a concern to you? Even if you knew the theory that the market would bounce back, could you sleep?
Consider the Global Financial Crisis of 2008/2009, when US equities dropped 54% over an 18 month period. Consider also the Covid-19 share market correction in March 2020 (the lowest point was on 16 March). For those who remained invested, their funds recovered and investors saw strong growth over the following years.
Those investors continued to get ‘the best’ returns compared to investments that had more of their money invested safely. For those who panicked and cashed out of their shares, they consolidated their losses and enabled another investor to make great gains.
An investment market is a zero sum game. When one investor sells for a low price, accepting their losses; another will buy, celebrating a great gain. It’s just like investing in real estate: sometimes someone will sell a property in a hurry at the wrong time. Another will seize the opportunity to buy at a sale price.
How long does it take to transfer my pension?
This depends on the UK provider. It usually takes 2-3 months, but can take up to 6 months. You will be kept informed at all stages.
How do I find out what UK pensions I have?
You can contact your previous UK employer, or pension provider. You may be able to find out using this UK Government web site.
How do I find my National Insurance Number?
If you can’t find your National Insurance Number you can download a form from the HMRC website lost National Insurance Number .
It can take 6-8 weeks to get a reply.
Is there a Kiwisaver QROPS?
All Kiwisaver plans had there QROPS status removed by the HMRC after they noticed that members could access their funds (for home deposits) earlier than age 55.
Transitional Tax Resident?
There are two ways a person can become tax-resident in New Zealand under section OE 1 of the Income Tax Act 2004: by acquiring a permanent place of abode here or by being present in the country for more than 183 days in a 12-month period. Where the 183-day rule applies, a person becomes tax-resident from the first of those 183 days. You can lose your status if you apply for any benefits such as working for families, even if your application is rejected. You can claim for paid parental leave without losing your transitional residency status.
Transitional residents and their spouses are not eligible to receive family assistance payments. No deductions or losses can be taken against exempt income. For example, if you have a rental property in the UK and unexpected maintenance expenses resulted in a loss on that investment, you cannot offset that loss against your earned income in NZ if you are a transitional tax resident.
Foreign superannuation, dividends, interest, royalties and rental income are exempted from tax for the first four years for transitional tax residents (who can be new migrants and returning New Zealanders).
If you transfer your pension within the first four years of becoming a New Zealand tax resident, you won’t have to pay tax on the amount you receive. The four-year exemption period generally applies to lump sums received on or after 1 April 2014, if you have not previously had an exemption period. The exemption period starts from the date you become a New Zealand resident. It runs until the end of 48 months from the beginning of the month after the one in which you become a New Zealand resident.
Four Year Tax Exemption?
The exemption period starts from the date you became a New Zealand tax resident. It runs for 48 months from the beginning of the month after the one in which you became a New Zealand tax resident. If you receive a lump sum from transferring your UK pension to New Zealand within the first four years of becoming a New Zealand tax resident, you will not have to pay tax on the amount you receive.
QROPS tax facts
It is essential that you have a good understanding of your tax obligations. The basic points are:
- If you transfer your pension within the first four years that you become a New Zealand tax resident, you will not have a tax liability.
- If you leave New Zealand within five years of transferring your pension funds, an Overseas Tax Charge (OTC) of 25% will be applied to your funds.
The IRD Taxation Increments Table shows that your tax liability will increase every year (after the first four ‘free’ years). The increases start at 4.76% in the first liable year (year 5 from the date you became a tax resident) and increase to 100% in year 26 (after you have been a tax resident for 30 years). If you are planning to transfer your pension, it’s best to do so within the first four years.
In the UK contributions into a pension scheme are tax Exempt, growth on the scheme is tax Exempt, the pension is Taxable. This is referred to as EET.
In New Zealand, it’s the reverse. Contributions come from Taxed income, investment growth is Taxable, income in retirement is Exempt. This is referred to as TTE.
If I file a UK tax return, do I have to file a NZ tax return?
If you are a New Zealand tax resident you must file a NZ tax return and include your Worldwide income. There is a double taxation agreement between NZ and the UK which allows for credit of any tax deducted in the UK. The only exception to this is if you are a Transitional Tax Resident and are exempt for the first 4 years.
Advantages of transferring
The only way you can transfer your UK pension to New Zealand is via a QROPS. The benefits of doing so are:
- You will no longer need to worry about varying exchange rates between New Zealand and the UK.
- You will have more control over your retirement income and a good relationship with your financial adviser, rather than being a non-entity in a highly automated and vast UK pension company.
- Many British ex-pats get frustrated with poor communication from their UK providers.
- You will have more choice about where and how to invest your money.
- You might pay less tax. You’ll need to talk with a qualified tax adviser about your tax liabilities. Lyfords can guide you through this and refer you to an accountant who has experience in the taxation of UK pensions.
- You are likely (but not certain) to have a higher after tax income in your retirement. You must discuss this with your financial adviser.
- You’ll have more options with your money when it is in a QROPS. If you’re not happy with one, you can move it to another.
Lyfords does charge a fee to assist you with transferring your UK pension. If you’re not happy with Lyfords, you can move to another advisory firm, but it’s rare that people are not happy. We value your business and aim to keep you as a long term client.
When you die, the money left in your retirement pot will be paid into your estate according to the instructions in your Last Will and Testament. Many UK pensions either stop or reduce by 50% the benefit that is paid to a surviving spouse.
More people are leaving UK pension schemes than joining them. In 2019 it was estimated that 3,700 UK pension schemes had deficits (insufficient funding), and 1,800 had surpluses.
There are 11 million Brits in Defined Benefit schemes. Of this number it is estimated that 3 million are expected to encounter problems, with only a 50% chance of receiving their promised pension (The Guardian, January 2018).
You are responsible for paying your tax in New Zealand. Your personal tax liability, based on the value of your pension transferred, will not be paid by your New Zealand QROPS scheme.
Tax is not deducted from your transferred funds to pay for any tax owing on the initial transfer. The QROPS provider will pay tax on the investment growth of the fund.
Caution: If you don’t pay your tax owing when you transfer your pension, IRD will charge you interest on your tax debt and possibly penalty tax when they catch up with you.
Their computer systems are very good and it is likely that they will eventually demand any tax and interest on unpaid tax that you owe.
QROPS lump sum
When you transfer your pension to New Zealand it can only be transferred into a QROPS, usually as a lump sum. It is possible to transfer equities in SIPP’s directly into the QROPS, but this can be quite complicated and will cause delays in transfer. The transfer value of your UK pension is calculated by your UK pension provider.
It is then transferred to your New Zealand QROPS where the money is invested based on your retirement requirements and your investment risk profile.
This may include a decision to withdraw some, or all, of your funds after you turn 55.
Lyfords will help you to decide how much retirement income you want every year. Usually, people want more in the first ten years of their retirement and less as they get older.
The lump sum you transfer into a QROPS in New Zealand will ultimately provide you with retirement income that is paid into your bank account every month. These payments are not taxable.
This income is a draw down on your investment capital and is not taxable income. Growth on your actual investment pot is taxable.
SRI - Socially Responsible Investments (ethical funds)
Investors often ask about how they can align their investment decisions with their views on sustainable development and their environmental concerns. This is an option for socially and environmentally conscious investors. It means that your money can be actively used to, as the United Nations puts it to: “meet the needs of the present without compromising the ability of future generations to meet their own needs”.
The challenge of Socially Responsible Investing (SRI) is how to adopt a sustainability approach with transparent reporting on the metrics that are important to sustainability-focused investments, without compromising sound investment principles.
There are a number of different approaches to ethical investing, such as negative or positive screening. Negative screening seeks to exclude certain companies or industries assessed as having a negative impact on society, including industries with exposure to factory farming, child labour, cluster munitions and landmines, nuclear weapons systems, tobacco, alcohol, gambling and adult entertainment. Generally, companies connected with these issues can be excluded without a significant impact to diversification.
An SRI fund should also include a focus on shareholder advocacy. It should consider whether the company is acting responsibly on a range of environmental, social or governance issues including emissions metrics, both greenhouse gas emissions intensity and potential emissions from oil, coal and gas reserves.
The portfolios we recommend are designed to address the issues that are most important to environmentally focused investors without compromising on sound investment principles or requiring investors to accept lower returns.
There is more information in our blog Socially responsible or ethical investments for your UK pension
Defined Benefit (or Final Salary) pension scheme
A Defined Benefit scheme may also be referred to as a ‘Final Salary’ scheme. In this scheme the pension is calculated based on a percentage of your final pay and how long you have worked with your employer. Your pension may also be calculated based on your average pay over your career. The pension is guaranteed by your employer. As your scheme is not based on your contributions, Defined Benefit schemes can often struggle to meet their commitments as their members life expectancies increase. Refer to our article ‘The 5 reasons to transfer your defined benefit scheme‘.
UK Defined Benefit schemes had an overall deficit of £203.4bn at 31 March 2020, compared to £159.2bn 12 months earlier, according to The Pensions Regulator. Only 16% of the 5,334 Defined Benefit schemes in the UK had funding levels of 100%, down from 21% in 2019.
Defined Contribution (or Money Purchase) pension scheme
A Defined Contribution pension, also called a Money Purchase or unit-linked pension scheme is where your employer’s contributions and yours are saved into your pension pot with your name on it. The money in your pension scheme is not guaranteed and the value can go up or down depending on how your investments perform.
Overseas Transfer Charge (OTC)
The OTC is a 25% tax that is applied to pensions when they are transferred to another country.
There are exceptions:
If your pension savings are transferred into the same country in which you are living, the OTC will not be applied. You must remain a tax resident in New Zealand for five full UK tax years from the date that you transfer your pension. Alternatively, you could move your transferred QROPS fund into another HMRC approved QROPS fund in the country that you are moving to, in order to avoid the 25% exit tax enforced by the HMRC.
If you move to live in another country within five years of transferring your money, the OTC will be payable. If you move back to the country to which you transferred your pension, you may apply for a refund if it is within five years of the time you transferred your pension.
Will my money be safe?
Yes. Only you can withdraw funds from your private investment account.
Please note that the capital value of your investment portfolio will fluctuate with market movements.
What are your fees?
The fees are clearly explained and very transparent. Once we know the value of your pension funds we will provide a contract of engagement stating the fees to be charged.
What is the Cash Equivalent Transfer Value?
Before deciding on whether to transfer a Defined Benefit scheme Lyfords will need to request a ‘Cash Equivalent Transfer Value’ from your pension provider. The scheme is required to actuarially convert the benefits that you have accrued into a lump sum amount that can be transferred.
Am I eligible to transfer my UK pension to New Zealand?
You can transfer if you have not been receiving income from your UK pension funds, and if it is not a State Pension, unfunded public sector or civil service pension. You must be a New Zealand resident.
If you have an annuity or you have an occupational scheme and are taking benefits, we are unable to transfer your pension.
What pension funds can not be transferred?
The following pension schemes can not be transferred:
- Unfunded UK Government schemes such as the NHS, Teachers Pensions, Civil Service, Police, SPPA and the Armed Services can no longer be transferred. The only option for these schemes is for retiring members to be paid a taxable pension. This is often unsuitable for Brits who have emigrated from the UK.
- Defined Benefit schemes that have been moved to the Pension Protection Fund
- Pensions that have been moved into an annuity scheme.
- UK Government State Pension, all enquiries should be referred to NZ Work & Income UK State Pension paid in New Zealand
BUT: Funded Public Service Sector schemes such as Local Government Pension Schemes (LGPS) can still be transferred. Some people working in schools, the Police, and NHS might be on the LGPS payroll enabling their schemes to be transferred.
If you cannot transfer your pension due to the rule changes, we will not charge you a fee for finding this out.
Are your services available NZ-wide or internationally?
Yes. While our premises are in Lower Hutt, we visit clients in the North and South Islands several times a year. We communicate regularly with our clients by phone, Zoom and email. We also have some New Zealand clients who are currently living overseas.
Our clients find distance is not an issue, especially with email and being able to view their investments at any time directly via a secure website. Any portfolio changes are agreed upon via email before they are implemented.
What makes LYFORDS different to other financial adviser companies?
We have been transferring UK pensions for over twenty years. This has allowed us to develop processes that are clear, simple and as painless as possible as we deal with the red tape and requirements of the UK pension providers. With the documents we send you we have completed most of the information required.
Lyford advisers continually question, analyse, and review the options available. Our financial advisers use high-quality independent research from different sources. All fees are fully disclosed. Alison and Richard have a combined experience in financial advising of over 65 years. The key benefit that this brings to their clients is they have experienced the highs and lows in the investment markets and guided their clients through these difficult times. Have a look on our blog The value of a Financial Adviser
They have been providing a specialist UK pension transfer service since 2001. They are proud of their unbiased advice and not being aligned with any bank or financial institution. In some cases, Lyfords has recommended clients not to transfer their UK pensions. In these cases Lyfords does not charged a fee.